No-frills. The term conjures up images of a host of things. You can have a no-frills airline or a no-frills supermarket. If this is not enough, you can have a no-frills date with your partner. In such a date, each partner foots his or her part of the bill. Our friends Jinny and Johnny have no intention of going on a no-frills date. However, at present they are busy discussing the salient features of no-frills accounts offered by different banks.
Johnny: Recently I heard about one private sector bank offering ‘aazadi’ (independence) to its customers. Another public sector bank is extending its helping hand like a true ‘mitra’ (friend). Another bank is throwing open its doors for barefoot customer through its ‘Janatha’ savings bank accounts. I hope banks are not resorting to marketing gimmicks like some of our mobile phone companies.
Jinny: Well, banks rarely resort to marketing gimmicks. The products that you are talking about—‘aazadi’ and ‘mitra’—are some of the no-frills accounts offered by banks to their customers. I hope you are familiar with the concept of no-frills account.
Johnny: No-frills account? I have come across no-frills airlines but had no chance to encounter a bank account without any frills. What is this all about?
Jinny: Let me first give you a brief background of the whole concept. No-frills account is one of the key methods of ensuring financial inclusion for the masses living at the bottom of the pyramid. You may be aware that despite all progress made by our banking sector during the last five-six decades, there are a large number of people who have never even gone inside a bank. They have no permanent address, no proof of identity, and no fat salary to carry home at the end of the month. They toil all day and squirrel away their meagre savings at home. These people need the services of a bank as much as we do. The concept of no-frills accounts tries to bring banking to the doorstep of the poor masses.
Johnny: How did this idea of financial inclusion really make inroads in the collective psyche of banks? As far as I know, banks have been busy chasing only well-heeled customers.
Jinny: Well, in our country the Reserve Bank of India (RBI) gave the first push to this idea in its annual policy statement of 2005-06. Subsequently, through various circulars, RBI advised banks to implement the same.
The present state of affairs will testify that the banks are now taking more interest in opening no-frills accounts because they smell a very good business opportunity. Spreading the banking habit among the masses ultimately brings manifold benefits to the banks themselves.
Johnny: Sounds interesting! But tell me, how does it actually work?
Jinny: The working of a no-frills account is fairly simple. First of all, you do not require an address proof or identity proof for opening a no-frills account. You only require an introduction from someone who is a regular account holder with the bank.
Second, for maintaining a no-frills account, you require nil balance or a very low minimum balance. So there is no need to arrange for a hefty amount as a minimum deposit, as is the case usually.
However, there are certain restrictions. The total credit at any point of time in your account should not exceed Rs50,000. Further, the total of all credits in your account during any financial year should not exceed Rs1 lakh.
Johnny: But what benefits do no-frills account holders enjoy by maintaining an account? The last time when I travelled on a no-frills airline, I had to literally jostle for my seat. I hope one doesn’t have to repeat the same exercise while operating a no-frills account with a bank.
Jinny: Well, apart from earning interest on their deposits, the other services offered to such account holders differ from bank to bank. Banks are free to design their product on their own. However, they are required to provide wide publicity of their schemes in a transparent manner.
As I said, services offered vary from bank to bank. For instance, some banks provide a chequebook facility with a no-frills account, while some don’t provide any chequebook facility.
Some banks restrict the number of transactions you can carry out across the counter during a year whereas some banks don’t impose any such restrictions.
So ultimately, the facility that you enjoy depends upon the bank with which you maintain your account.
But in any case, no-frills account holders don’t have to jostle for just entering into the bank. You are treated like any other customer of the bank.
Johnny: No wonder banks are treating no-frills account holders with respect. After all, there is a good scope of making handsome profit on large number of small accounts. In fact, it appears to be a win-win proposition for both the banks and the customers.
Shailaja and Manoj K. Singh have important day jobs with an important bank. But Jinny and Johnny have plenty of time for your suggestions and ideas for their weekly chat. You can write to them at firstname.lastname@example.org
What: No-frills or basic banking accounts offered by banks.
Who: No-frills accounts intend to bring people at the bottom of the pyramid within the banking system. As per one estimate, 41% of our population is unbanked.
How: The?accounts?can?be?opened with zero or a very small balance and with fewer formalities.
How much: Total credit in the account at any time should not exceed Rs50,000. The total of all credits during a year should not exceed Rs1 lakh.